(Xcylur Stoakley, Lennel Grace, Collette Nakamyuka (also pictured below) and Barry Wilson. Photos by Michael Romain for The Village Free Press).
Tuesday, July 29, 2014 || By Michael Romain
A new venture capital firm is seeking to bring a business incubator to Proviso Township, but it must first bridge a divide
Ask most people in one of the wealthiest countries in the world what wealth is and you’ll get an avalanche of poorly informed misconceptions. Perhaps the most obvious reason for this irony is because most people, not just in America, but in the wealthy Western world in general, aren’t wealthy.
Wealth is the sum total of one’s nonhuman assets. In other words, wealth is capital, which means any asset (such as stocks, bonds, real estate, plants, machinery, patents, etc.) that can be exchanged for something else on some market, according to French economist Thomas Picketty, who has morphed into something of a godfather on the subject. He even wrote a book on it, which is authoritatively called Capital in the 21st Century.
For most people before 2008, their primary form of capital was their home. When the housing bubble crashed, the values of people’s homes dropped so sharply that many couldn’t be exchanged for more than they were worth. Since many people’s wealth, their net worth, is tied up in their homes, their net worth became negative (i.e., they had more debt than wealth). There was typically no other capital assets in their wealth portfolio–no business, no stocks, no bonds, no patents–to compensate for the plunge in the value of their homes.
Collette Nakamyuka, a Uganda-born fashion designer, doesn’t want to be like most people, so she’s leveraging her sartorial skills to build what many strivers among her generation consider to be perhaps the most potent form of capital around–a marketable brand.
Nakamyuka, 30, who works out of Hyde Park, founded House of Collette several years ago. The name invokes the elite panache of Saville Row and Haute couture fashion houses such as Christian Dior, Givenchy and Elie Saab, whose Lebanese namesake Nakamyuka calls her inspiration. She designs handbags, jeans, wedding gowns, ballroom gowns and cocktail dresses. She hopes to have a men’s line out by 2015. You can see and purchase some of her work here.
Growing up in Uganda, fashion had always been her passion, but her parents didn’t consider it a career. It wouldn’t pay the bills. She went to IT school, instead, but kept drifting back to her first love, eventually establishing her own boutique. Seven years ago, she came to America to focus on her dreams of expanding her brand, which she wants to be known worldwide. Eventually, she hopes to make inroads into mass producing her designs, preferably in America–both as a point of giving back to her adopted country, but also because of practical concerns.
Last year, she went on a 35-day reconnaissance mission to China to gather information about the workers’ use of fabrics, the manufacturing and labor costs, and the standards and quality of the work. She came to a conclusion that–judging by the decisions of many large multinational corporations that have offshored much of their production processes to China–is against the current trend.
“That trip was really informative,” she said. “When I saw the quality of work they do, I said, ‘We need to bring manufacturing back home, because America has better quality, better work standards, better wages. It’s miserable out there. Clothes made in China–you wear them and they shrink, the stitches tear up. Quality really matters.”
Nakamyuka’s concerns may be entirely pragmatic, but her goal of growing a manufacturing-based business by concentrating the production in the United States seems downright ideal in today’s global business climate. The competition, it would seem, simply wouldn’t allow it to be sustainable after a certain level of growth. To compete with, say, Beyonce’s House of Dereon or Donald Trump’s China-made ties, it would seem that House of Collette would have to cave on quality a bit to decrease costs. But this is putting the cart before the horse, because the business first has to get to that point where its even a factor in the competition.
Nakamyuka, who has partnered with organizations such as the National Black Chamber of Commerce, Chicago Fashion Week and the Bronzeville Visitor’s Center, and a company called Sororitque, says that currently her business is based online. She has a number of steady customers and a flow of income that comes from a variety of collaborations, such as the ones listed above. She wouldn’t disclose her net revenue or gross profits, but said that neither is enough to take her to the next level. For that she needs capital–money for payroll, infrastructure, equipment, physical space, etc.–and to get that capital she needs credit.
“If you don’t have the money, you don’t have the credit,” she said, expressing a vicious conundrum that most small businesses, particularly the ones not in the high-tech industries, face routinely. “I’ve only been here for seven years, so I haven’t been here that long to build my credit. I only had one credit card and no savings at all.”
House of Collette’s problem is precisely why Urban Capital of America was formed a few years ago, says its founders Xcylur Stoakley and Barry Wilson. They envision building a business incubator in Proviso Township that would nurture start-ups such as House of Collette to full fruition–from seed stage to blossom. Wilson met Namakyuka through serendipity–they were in the airport and chanced upon a conversation about the designer’s ambitions. They exchanged information and an unlikely relationship was formed.
“This country’s in trouble. It isn’t creating jobs where we need jobs,” said Wilson during a presentation in front of Broadview’s Board of Trustees. “High tech incubators are creating jobs five to ten years from now for Ph.D’s, but we’ve always been focused on helping companies that have existed today or can provide services and products that are needed today. So we can start hiring people today.”
Urban Capital’s diagnosis is spot on. The problem for small entrepreneurs such as Namakyuka is that the much-needed capital that beginning businesses so desperately crave is often concentrated and funneled to a few select industries, which are often already relatively well-financed. The emphasis is often on short turnaround times, gargantuan upside and low risk. Investors, nowadays, want to have it all. That makes it difficult to attract much capital to companies and industries that require time to cultivate and mature before turning a profit. It doesn’t help that capital is virtually horded by big institutional banks that are as focused on the short-term as some venture capitalists.
Meanwhile, Nakamyuka struggles to get a loan to manufacture clothes and even public institutions such as the Maywood Public Library can barely acquire financing to keep its doors open. It’s an outrageously inefficient allocation of wealth. And something needs to be done about it.
The challenge for Urban Capital, however, comes in the translation–trying to successfully turn an admirable goal into a workable reality. Wilson, who started working in venture capitalism 30 years ago and is the former chief operating officer of E2, a high-tech business incubator based out of the University of Southern California, says that the key to their approach is what’s called royalty-based financing.
According to Scott Goodwin, a Certified Public Accountant with Wolf & Company, P.C., royalty-based financing, “allows the Company to get money now in exchange for future repayment without the business owner sacrificing any equity. The future repayments are based on a percentage or dollar amount of future revenues (i.e. royalty payments). This allows the business owner to continue to exercise control over their Company without worrying about sharing decision making responsibilities or contemplating an exit to return capital to their angels or VC’s [venture capitalists] down the line.”
Urban Capital hopes to attract a range of companies to a physical incubator they hope to locate somewhere in Proviso Township, provide them with financing, in addition to material support in the form of infrastructure, resources and business advice, and grow them to the point where they can stand on their own-somewhat like seeing a toddler through to young adulthood. It’s a novel concept, particularly for the Proviso Township Area.
“There are other incubators like 1871 in Chicago and another one getting started on the South Side,” said Lennel Grace, a principal with the company. “I see this as the third one.”
During a presentation in April to the Maywood Board of Trustees, Stoakley said that Urban Capital is looking to identify a facility that is between 5,000 and 7,500 square feet and would house between seven and ten companies. He said they would utilize a dashboard financial system, provide business advice and support to companies, and make available common services such as Wi-Fi, a conference room space, copiers, printers, scanners and a kitchen.
“If there’s a need for additional finances, we can spot that early and go find it or be the source for those finances,” he said. “We’re looking to create a modern facility where businesses can thrive and grow.”
But the Urban Capital team has recently had a hard time selling local government officials on the novelty. Wilson, Stoakley and Grace have appeared in front of at least two local municipal boards in the area–Maywood and Broadview–to test their levels of commitment to the idea and inquire about future TIF funding for the physical space. Both times, they were met with reservation and skepticism among many of those towns’ trustees. The main questions the politicians have had for the businessmen is, ‘How much will this cost us?’, What is the rate of success?’ and ‘What is your record of achievement?’
During their Broadview presentation, Wilson, Stoakley and Grace touted their combined professional and investment experience. Grace has a professional background in management, information technology and engineering, while Stoakley is the co-founder of Ark Capital Management. During a presentation in Maywood, Stoakley said that he’s made investments in Europe, Australia and Asia–experience he believes the company can leverage on behalf of the start-ups they’ll host in their proposed incubator.
But they were short on disclosing the identities of their investors. Wilson said that the company has some lined up–they include, he said, pension funds and various high-net-worth individuals. They’ve also been short on hard financial figures. The ambiguity of their pitch, which the group admitted is still a work in progress, seemed to exacerbate a preexisting level of distrust in the world of finance among those who don’t inhabit its often misunderstood and secretive realm.
Capital doesn’t naturally compute with people whose main source of income is tied to a job or one lone asset (a home), instead of to derivative income from stock or rent or equity. This disconnect may be the group’s biggest obstacle, but if they can bridge this gap by gaining people’s trust, they may be able to pull off what sounds like an admirable local solution to a very pressing national problem. The more Collettes the better. VFP
Correction: A previous version of this article had mispelled Ms. Nakamyuka’s last name. This article has since been emended.